Important
Negative gearing is back in the headlines. Again. We have a housing shortage, a Federal target to build 1.2 million homes, and frustrated first-home buyers. Every time pressure builds, someone says scrap negative gearing. It is not that simple.
Negative gearing is back in the headlines. Again.
We have a housing shortage. We have a Federal target to build 1.2 million homes over five years. We have frustrated first-home buyers. And every time pressure builds, someone says, “Just scrap negative gearing and the problem will be fixed.”
It sounds simple.
It is not.
What Negative Gearing Actually Is
Negative gearing is not a loophole. It is arithmetic.
Take the income from an investment and subtract the expenses. If the expenses are higher, you have a loss.
The fact that the sum results in a loss means you have a “negatively geared” property.
In practice, that often means you are putting more cash in today, hoping the asset grows in value over time.
That is it.
Why It Keeps Coming Up
Australia has a genuine housing shortage. Some argue that if we cancel negative gearing, homes will free up and prices will fall.
History suggests otherwise.
In July 1985, under the Hawke Government, Treasurer Paul Keating quarantined negative gearing, so rental losses could not be offset against other income. Construction slowed. Rents rose in several capitals. By September 1987, the policy was reversed.
Blunt instruments did not work then. There is no reason to think they will work now.
Construction is a major pillar of the Australian economy. When it slows, the ripple effects are significant.
The Interest Point That Gets Overlooked
Most negative gearing losses arise from interest. And this is the key expense under scrutiny.
If you borrow to buy an income-producing asset, the interest is deductible. That applies to:
- Shares
- Businesses
- Equipment
- Commercial property
- Residential property
To single out residential property and remove interest deductibility feels arbitrary.
If the borrowing produces income, the interest is a legitimate expense.
So I do not support abolishing negative gearing altogether.
A Surgical Fix Instead
Rather than a sledgehammer, I prefer something less heavy-handed.
Pick a future date. From that date onward, disallow depreciation deductions on residential properties purchased after that point.
No retrospective changes. Anyone who has already exchanged continues under the current rules.
Quantity Surveyor Depreciation Schedules
The issue here is the quantity surveyor’s depreciation schedules. In the first three to five years, they can generate significant paper deductions on fixtures and fittings bundled into the purchase price.
Depreciation is a non-cash expense. It does not leave your bank account like rates or interest. Yet it can tip a property into a sizeable tax loss.
Remove that non-cash deduction for future purchases, and the headline losses reduce materially. Especially on the new properties that we need built, sold and housing families.
What Would Happen?
For Government
- Increased tax revenue.
- No shock to the system.
For Construction
- Interest remains deductible.
- Confidence is preserved.
- No retrospective hit.
For Investors
- Early-year tax benefits soften.
- Purchase cycles may stretch from three to four years out to five to six.
For First-Home Buyers
- Investors lose an on-paper advantage.
- The playing field levels slightly without collapsing supply.
Investors buy on numbers. If the numbers are trimmed, behaviour adjusts. It slows things down without freezing the market.
Do Not Forget Developers
If we are serious about building 1.2 million homes, tax policy alone will not solve it.
We also need:
- Streamlined council approvals
- Lower friction in planning systems
- Greater certainty around timeframes and costs
Developers take real risk. If projects do not stack up, they simply will not proceed.
If it does not make dollars, it does not make sense.
Keep It, But Tweak It
My position is straightforward:
- Do not abolish negative gearing.
- Keep interest deductibility for genuine income-producing assets.
- But draw a line in the sand and remove depreciation deductions on future residential purchases.
No shock. No collapse in construction. No repeat of 1985–87.
Just a measured adjustment that raises revenue, supports supply and slightly evens the field for aspiring homeowners.
Disclaimer: This article provides general information only and does not take into account your personal circumstances. It is not financial or tax advice. You should seek independent advice from a qualified professional before making decisions about tax, legal or financial planning matters, along with loan structures or entity structure.
